Annualized real GDP contracts unexpectedly by 0.2% in Q2, missing expectations of 1.2% growth

• Canadian economy contracts 0.2% against expectations of a 1.2% expansion.
• USD/CAD stays in positive territory above 1.3500 after the data and US NFP. 

Canada’s real Gross Domestic product (GDP) contracted at an annual rate of 0.2% in the second quarter, Statistics Canada reported on Friday. This reading followed the 2.6% expansion (revised from 3.1%) recorded in the first quarter and came in worse than the market expectation for growth of 1.2%.

On a quarterly basis, real GDP stagnated compared to analysts’ estimate of a 0.3% expansion. During the first quarter, it expanded 0.6% (revised from 0.8%). 

On a monthly basis, real GDP contracted in June 0.2%, in line with expectations. In May, the economy expanded 0.2% (revised from 0.3%). 

Key takeaways: 

Real gross domestic product (GDP) was nearly unchanged in the second quarter, following a 0.6% rise in the first quarter. The slowdown was attributable to continued declines in housing investment, smaller inventory accumulation, as well as slower international exports and household spending. Increased business investment in engineering structures and higher government spending were among the few components that contributed to growth.

The GDP deflator rose 0.7% in the second quarter, as consumer inflation remained elevated.

Real gross domestic product (GDP) decreased 0.2% in June, following a 0.2% increase in May. Both services-producing industries (-0.2%) and goods-producing industries (-0.4%) contracted in June with 12 of 20 industrial sectors posting decreases.

Market reaction

The Loonie weakened in the market after the data. Not only did the Canadian economy contract unexpectedly during the second quarter, but previous numbers were revised lower.

USD/CAD rose modestly to fresh daily highs above 1.3520. At the same time, the US official employment report was released,and it triggered a decline of the US Dollar limiting the upside of the pair.